PROPERTY: Strong economy drives retail rent inflation in Germany

29 January, 2018

Rents for retail spaces in secondary locations in the centres of cities in Germany with more than 500,000 inhabitants surged by around 9.3 % last year, while rents in smaller cities fell, according to the Immobilien Zeitung, citing the IVD’s latest Commercial Property Rent Index.

“Germany’s retail trade is booming,” observed IVD President, Jurgen Michael Schick. The strongest rental price increases were registered in Frankfurt and Berlin. However, the smaller the city, the lower the rent increase.

Furthermore, in 2017, total returns on German real estate climbed to their highest level since reunification, according to preliminary results from bulwiengesa’s latest German Property Index (GPI). The average return from residential, retail, office and logistics properties stood at 19% (2016: 16.1%). The highest total returns in 2017 were achieved in the rental apartment sector at 24.1%, including 18.3% from property price increases, and offices at 19.8%, of which 14.7% was due to property price increases.

On the residential investment market, the highest returns (25%) were achieved in Class D locations, whereas the best returns for office investments were achieved in Class A locations.

Meanwhile, the Suddeutsche Zeitung explored the next federal government’s options for meaningfully reforming regulations on the energy efficiency of buildings.

The regulations need to be reformed because, from 2021, every EU member state will have to ensure that all new buildings meet climate-friendly, “nearly zero energy building” standards. The real estate industry has called on legislators to maintain energy-efficiency requirements at the current level, as specified by Germany’s Energy Saving Ordinance 2016 (EnEV).

The industry has warned that any tightening of the regulations would not only fail to deliver climate protection gains, it would also lead to a significant increase in construction costs.

According to the Federal Association of German Housing and Real Estate Companies (GdW), it would make far more sense to include an obligation to monitor and report CO2 emissions in the reformed building energy law.

As revealed by Immobilien Zeitung, the German Construction Industry Federation and Central Association of the German Construction Industry expect 320,000 new apartments to be built in Germany this year, again falling short of the 350,000 units that are in fact needed. Around 300,000 apartments were completed last year.

According to the two trade bodies, municipalities are still not zoning enough building land, creating a major bottleneck and causing serious delays in the completion of new housing.